The idea
To effectively abolish employee and self-employed National Insurance, and increase the parallel rates of Income Tax.
Why is it important?
Currently, employees and the self-employed are taxed in 2 ways, through Income Tax and National Insurance. These are effectively 2 separate tax schedules which are levied simultaneously on a person's income, and work in a very similar way – there is an initial tax-free allowance, and then bands of income are taxed at different rates.
Abolishing National Insurance and increasing the parallel rates in Income Tax will have a twofold effect:
1. It will significantly simplify the personal taxation system, not just for HM Revenue & Customs, but for every employer in the country
2. The net tax burden on the people affected will be negligible, as the Income Tax and National Insurance thresholds are very close to each other anyway
Some self-employed people would have to pay more; however, given that the self-employed National Insurance system consists of a flat-rate contribution, the lowest earning self-employed people would actually be better off as a result of the change. Furthermore, self-employed people do not build up any entitlement to the State Second Pension (S2P) in exchange for (usually) paying less National Insurance. This should be changed so that, as their National Insurance treatment would be the same as everyone else, so too should their State Pension.